WTI Crude Oil
The West Texas Intermediate Crude Oil market appears to be stuck in a consolidation phase, with very little movement during the Wednesday trading session. The 200-Day EMA is currently sitting at the top of the previous consolidation area, causing resistance in the market. After OPEC+ suggested a 1.6 million barrel production cut starting in May, there are growing concerns about crude oil supply. However, there are questions surrounding why OPEC chose to cut production, with the most obvious answer being concerns about pricing power as the world heads into a global recession.
It's worth noting that futures markets tend to fill gaps, and the 200-Day exponential moving average offers resistance as well. If the market breaks down below the recent lows, then it's likely that the gap will be filled. However, if the market breaks above the 200-Day EMA, then we could see a push towards the $85 level.
Brent Crude Oil
While the Brent market has also gone back and forth, the 200-Day exponential moving average sits at the $87.10 level, offering resistance. There is also a gap underneath that could be filled soon. The 50-Day EMA sits just above the beginning of the gap, making it a potential target. If the market breaks above the $87.50 level, then a move towards $90 could be possible. Keep in mind that the Brent market is typically geared towards ex-US consumption, so there may be a bit of a divergence down the road. The Brent market does have a little bit more in the way of buoyancy, as the Chinese are said to be big buyers at the moment.
Historically speaking, OPEC production cuts tend to give a boost to pricing power that doesn't last long. It's a "fade the rally" type of situation. Therefore, there are concerns about oil falling eventually, particularly given the current economic climate.
Overall, the crude oil market is experiencing a lot of noise, making it difficult to predict where prices will go in the near future. However, the gaps in both WTI and Brent, along with the resistance offered by the EMAs, suggest that a pullback is likely in the short-term. Ultimately, the crude oil market is highly sensitive to global economic activity, so it's worth paying close attention to any developments on that front. With the recent economic numbers, it’s likely that most news will eventually be seen as bearish.
Potential Crude Oil Signal
- If the crude oil markets – either grade – drop below the lows of Monday, selling oil to reach the 50-Day EMA is the trade.
- A stop loss of $1.50 will be needed, due to volatility.
- This is a simple “fill the gap” trade.
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